The Hindu Business Line : CMP elements in sharp focus

THE Finance Minister has achieved the fine balance between political and economic compulsions. The Budget did not have any big-bang announcements. Nor did it have any major negatives.

To start with, the focus was on allocating resources to agriculture, rural spend, poverty eradication, employment and infrastructure, all of which are key elements of the CMP. The emphasis was on agriculture and rural infrastructure, credit delivery through overhauling co-operative banks, strengthening micro-finance network and promoting micro-insurance.

Implemented properly, these will go a long way in making the economy more robust and sustainable. The other emphasis was to make the small and medium sector vibrant. A positive feature was the recognition that the textile industry could play a crucial role and the announcement of several measures to rejuvenate and boost the textile sector.

Industry as a whole was left short on its expectations as the Budget had few things for it. Reduction of peak Customs duties and rationalisation of excise duty for a few sectors were the only highlights. The petroleumsector got relief through reduction in Customs and concessions on excise for crude, LPG and kerosene. Measures for revitalising the sugar industry were announced. One would sum it up as a virtually "industry-neutral Budget" — neither too many positives nor negatives.

Services, again, were left largely untouched. FDI was mentioned briefly but sidestepped in terms of announcements. On banking sector reforms the Finance Minister held out the promise of a detailed blueprint that the RBI would bring out in conjunction with the Finance Ministry. IT was largely left untouched.

The capital market was also left largely untouched, though there were a few positive measures on OTC derivatives not being classified as "speculative", development and deepening of the corporate bond market and commerical paper.

On the taxation front, the announcement of moving to the VAT system was a positive. The key, however, is "implementation". The recasting of IT slabs for individuals and a flexible and increased limit for "savings and investment" of Rs 1,00,000 is very welcome. Corporate tax for domestic companies has also been brought down, though depreciation norms have also been changed.

Overall, one would summarise that given the compulsions, the Finance Minister has done an exemplary act of balancing and is, in fact, projecting a lower revenue and fiscal deficit. Many wonder how this can be achieved, as the revenue sources have not changed significantly.

The key is `growth'. As the economy grows, and with an improvement in the tax-GDP ratio, incremental revenues are likely to flow in. India is currently poised to make a global impact and, hence, one would have liked a more reformist Budget. However, the overall outlook remains optimistic and positive.

(The author is Group Head, Corporate Institutional Banking, Kotak Mahindra Bank.)

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